The Subrogation Strategist

In Netherlands Ins. Co. v. Cellar Advisors, LLC, 2019 U.S. Dist. Lexis 10655 (E.D. Mo.), the United States District Court for the Eastern District of Missouri considered the scope of a waiver of subrogation clause in two wine storage agreements. The court held that the subrogation waivers were limited in scope and, potentially, did not apply to the damages alleged in the pleadings. This case establishes that, in Missouri, waivers of subrogation are narrowly construed and cannot be enforced beyond the scope of the specific context in which they appear.

In 2005, Krista and Reid Buerger (the Buergers) contracted Marc Lazar (Lazar) to assist with purchasing, transporting and storing their wine. In 2006, the Buergers entered into a contract with Lazar’s company, Domaine StL, for the storage of their wine in St. Louis. In 2012, the Buergers contracted with Lazar’s other company, Domaine NY, for storage of their wine in New Jersey. The 2006 and 2012 contracts included subrogation waivers. Pursuant to the contracts, Lazar and the Domaine companies (collectively, Defendants) would buy wine for the Buergers by either using the Buergers’ credit card or invoicing them after a purchase.

In 2014, the Buergers terminated their relationship with the Defendants. Shortly thereafter, the Buergers discovered that 1,300 wine bottles that the Defendants supposedly purchased were missing from the Buergers’ collection. The missing bottles had a total value of nearly $2,000,000. The Buergers submitted a claim for the lost bottles to their property insurance carrier, Great Northern Insurance (Great Northern).

After paying the claim, Great Northern filed a subrogation action against the Defendants in Pennsylvania state court, alleging breach of contract, conversion, bailment, negligence and other counts. The Defendants notified their general liability insurer, Netherlands Insurance Company (Netherlands), of the subrogation action. Netherlands the filed a lawsuit against the Defendants and Great Northern in the District Court for the Eastern District of Missouri, seeking a declaratory judgment that Netherlands was not required to defend or indemnify its insureds for Great Northern’s claims. In the declaratory judgment action, Great Northern filed cross-claims against the Defendants asserting the same claims that Great Northern brought in the Pennsylvania state court case.

The Defendants filed a motion to dismiss Great Northern’s cross-claims, arguing, among other things, that the subrogation waivers in the contracts between the Defendants and Buergers barred Great Northern’s claims. The 2006 contract contained a provision requiring the Buergers to secure insurance coverage for any and all loss of wine “while such wine [was] in Domaine StL’s facility.” The provision also stated that any insurance carried by the Buergers for wine losses “shall contain a clause whereby the insurer waives its rights to subrogation against Domaine StL, its agents, officers and employees for any loss or damage to its property or to the property of others covered by insurance.” The 2012 agreement had similar language. The 2012 agreement required the Buergers to have coverage for any loss of wine while such wine was in Domaine NY’s storage facility or en route to the facility, and to indemnify Domaine NY for related subrogation claims. The Defendants claimed that these clauses were broad enough to apply to Great Northern’s subrogation claims.

The District Court noted that Missouri generally recognizes subrogation waivers as valid and enforceable, but also held that such clauses do not apply to claims for damages that fall outside a waiver’s scope. As noted by the court, subrogation clauses must be limited to their express terms and cannot be enforced beyond the scope of the specific context in which they appear.

Here, the court found that the waivers in both contracts were limited to losses that occurred while the wine was in storage or en route to the Defendants’ facilities. Based on the pleadings, the court could not ascertain whether the missing wines bottles were ever purchased or placed in storage. The court held that if discovery revealed that the wine bottles were never transported to or kept in storage, then the subrogation waivers would not apply and Great Northern could seek recovery against the Defendants. Consequently, the court denied the Defendants motion to dismiss on the basis on the subrogation waivers.

The Cellar Advisors, LLC case establishes that, in Missouri, the scope of a subrogation waiver is narrowly limited to its express terms and the context in which it appears. This case is important to consider when evaluating recovery potential in cases involving contracts with subrogation waivers. If a contract has a subrogation waiver, subrogation professionals must review the specific language of the waiver and its context to determine if the loss at issue is outside the scope of the waiver’s reach. If so, then subrogation recovery may still be viable.